Stakeholder pensions are intended to cover a shortfall in state pensions

In 1997, Labour promised to reform pensions in a fair and sustainable way, in order to help those not rich enough to contemplate private provision, but too well-off to qualify for additional state benefits.

Since then the stakeholder pension - as it came to be known - has undergone a long and sometimes painful genesis.

As the scheme is finally launched, Carl Emerson of the Institute for Fiscal Studies explained the basic principles of the Stakeholder Pension to the World at One.

"The government has targetted these pensions at middle earners - those on £10-£20,000 a year - and it's the same as a personal pension except for its charges, the way it is regulated and its flexibility," he said.

"It puts the burden on the employer to sort out the mechanism of making the payment to the pension fund company," he added.

Compulsory or not?

One area of debate has been whether the stakeholder pension should be compulsory.

By definition, those in the target groups do not have much money to spare for saving. And the temptation for them to make do with the state pension will be even greater now.

The government was so badly battered by the outcry over last year's 75p state pension increase, that the figure was increased substantially for this year - with a hefty rise in the Minimum Income Guarantee on top.

That worries Tom Ross, Chairman of one of the government's own senior advisors, the Pension Provision Group.

Since pensioners are means-tested in order to offer targeted assistance to those worst off, today's savers might ask themselves whether they need to save if assistance will be on offer in case of poverty in their retirement.

But there's no guarantee that the state will offer that kind of provision in decades to come.

"There is a clash between trying to help today's poorest pensioners and encouraging today's low-paid people to save for themselves," he says.

Although anyone will be able to make their own stakeholder pension arrangements, all firms employing more than five people will be compelled to offer a scheme.

Ill-prepared

Thousands of companies have apparently not realised yet what their obligations will be, nor that they face a large fine if they fail.

Research carried out in November last year by the insurance company, Axa, found that many small companies were not even aware of their obligation to provide a stakeholder pension.

Axa's Steve Muir said of about 600,000 businesses that may be affected by the new legislation, he believed about 70% did not know.

So how well has the business community been prepared for the role it will have to play?

David Hands from the Federation of Small Businesses fears the Government is shifting the onus of responsibility onto his members.

"You're asking busineses to act as independent financial advisers in selecting between the schemes available.

"For small firms the cost of operating the payroll is about £288 per employee - for large firms it's about £5 each."

But the Social Security Secretary, Alistair Darling, insisted that the stakeholder pension would be taken up, and that it did meet a real need.

"When we set out on this track people said 'no-one will sell them'. Now there are 45 companies who are selling them from today," he said.

He explained that compulsion already exists in the present pensions system and that the stakeholder pension would not involve prohibitive costs to small companies.